Abbreviations and Banking Terminology Questions and Answers

Answer: A

Correct answer: Know Your Customer

Know Your Customer is the process by which a bank verifies a customer’s identity and address before opening an account. It is mandated by the RBI under anti-money-laundering rules and must be periodically updated.

Answer: B

Correct answer: Liquidity

LAF is the Liquidity Adjustment Facility, the Reserve Bank's principal instrument for managing day-to-day liquidity in the banking system.

Banks borrow from the RBI against government securities under repo when they are short, and place surplus funds under reverse repo when they are long. The repo rate is thereby the policy rate, and the corridor between repo and reverse repo bounds the overnight call money rate. The name says what it does: it adjusts liquidity, as distinct from the structural absorption of the cash reserve ratio.

Answer: A

Correct answer: National Common Mobility Card

The National Common Mobility Card is an interoperable transit and payment card launched in 2019 under the RuPay platform, branded "One Nation One Card".

Its point is interoperability: a single card works on metro, bus and other transit systems across cities, and also functions as a debit or prepaid card at ordinary merchants. Before it, each transit operator issued its own closed-loop card, so a traveller needed one per city. The offline wallet on the card allows payment where the gate has no live connection.

Answer: B

Correct answer: Borrowing

CBLO was Collateralised Borrowing and Lending Obligation, a money market instrument introduced by CCIL in 2003 for short-term funds against government securities as collateral.

Its purpose was to give entities excluded from the interbank call money market - mutual funds, insurers, corporates - a secured way to lend and borrow overnight. Being collateralised, it carried far less credit risk than call money and came to dominate the segment. It was replaced in 2018 by triparty repo, which serves the same function under a standard repo structure.

Answer: D

Correct answer: Institute of Chartered Financial Analysts of India

The Institute of Chartered Financial Analysts of India was founded in 1984 at Hyderabad as a body offering qualifications and education in finance and management.

It is a private educational institution rather than a bank, a regulator or a statutory professional body, which is what distinguishes it from most of the other abbreviations in this topic. It is also distinct from the CFA Institute of the United States, whose charter is a separate and internationally recognised designation - a distinction that was itself the subject of litigation.

Answer: D

Correct answer: Core Banking Solution

CBS in the technology sense is the Core Banking Solution - the central system that lets a customer's account be reached from any branch.

Answer: C

Correct answer: Current Account Savings Account

CASA refers to the combined balances a bank holds in current and savings accounts. These deposits carry little or no interest, so a high CASA ratio lowers a bank’s cost of funds and improves its margins.

Answer: B

Correct answer: Federal Financing Bank

The Federal Financing Bank was created by the United States Congress in 1973 within the Treasury, to centralise and co-ordinate the borrowing of federal agencies.

Before it, each agency issued its own debt, competing with the Treasury and with one another and paying more than the government's own cost of funds. The FFB buys their obligations and funds itself through the Treasury, so the borrowing is consolidated and cheaper. It is a debt management vehicle rather than a lender to the public.

Answer: B

Correct answer: Foreign Direct Investment

FDI stands for Foreign Direct Investment - an investment made by a firm or individual in one country into business interests located in another, either by establishing operations there or by acquiring a lasting interest in an existing enterprise. The defining feature is control rather than mere ownership: the investor takes a stake large enough to influence management, which is what separates FDI from Foreign Portfolio Investment (FPI), where shares are held purely for returns. In India, FDI is regulated under FEMA and is permitted through two routes - the automatic route, which needs no prior government approval, and the government route, which does. The keyed option originally read “Fixed Deposit Income”, which is not an expansion of FDI at all; it has been corrected here.

Answer: C

Correct answer: Credit Deposit Ratio

The credit deposit ratio is a bank's total advances expressed as a percentage of its total deposits - the share of the money it has raised that it has lent on.

It measures how intensively deposits are being deployed. A very low ratio suggests funds sitting idle in investments rather than earning lending margins; a very high one suggests thin liquidity and reliance on borrowed funds. The RBI also watches it district by district, since a low ratio in a region means deposits raised there are financing lending elsewhere.